Covid-19 Lockdown in Bulgaria: Arbitration as a Substitute for Courts

Covid-19, Corporate and M&A, Private Clients

Bulgaria declared a public health emergency on 13 March 2020. The Covid-19 emergency has affected multiple government services in Bulgaria, including courts.  With certain exceptions, these have shut from 15 March 2020 to 13 April 2020. The court closure may well be extended and when service is resumed, a backlog is likely.

Arbitration as a solution

How can you resolve a dispute in the meantime? If a dispute is urgent and a party needs a binding decision on it, the only viable solution is arbitration in Bulgaria or abroad. The arbitration may not necessarily complete by the time courts resume business, but it may give preliminary results (including an award), and is almost certainly going to complete its course sooner than state courts, even if they reopen in April 2020.

Arbitration options: Bulgaria and internationally

Of the two leading institutional arbitrations in Bulgaria – the Arbitration Court at the Bulgarian Chamber of Commerce and Industry (BCCI) and the Arbitration Court at the Bulgarian Industrial Association (BIA), BCCI has stopped initiating new proceedings and suspended open court hearings until 13 April 2020, but for the time being, BIA has not.

Even if all domestic Bulgarian institutional arbitration courts paused, there are the options of institutional arbitrations seated in other jurisdictions (e.g. London(1) or Paris(2) – both of which have confirmed that they continue to accept new requests for arbitration and do so electronically). It is also possible to start an ad hoc arbitration (on the difference between institutional and ad hoc arbitration, see below).

The determinations of disputes issued by arbitral tribunals are applied in Bulgaria broadly identically to judicial determinations of disputes. Domestic and international arbitration tribunals are also treated equally, provided certain conditions are met by the tribunal, including that its seat is in a New York Convention country (all European states and a total of 161 countries globally are).

The arbitration clause

Even without a pre-existing arbitration clause, arbitration can be agreed on after the dispute arises. With their arbitration agreement after-the-fact of dispute, the parties can also agree on the arbitrator(s), rules, seat, language, and much more.

Are all disputes arbitrable?

All disputes excluding those regarding ownership or possession of real estate, financial consequences of divorce, employment or consumer contracts are arbitrable. Arbitrations can be seated abroad, even if the parties’ business dealings touch predominantly Bulgaria or a third country.

Why arbitrate?

Except that it may currently be the only option to bindingly solve on-going disputes, arbitration also has advantages to traditional court proceedings, such as:

• Speed: arbitration is a single-stage proceeding, the award is final and the dispute can be resolved faster;
• Flexibility: parties can tailor the arbitration to meet the specific requirements of the dispute;
• Confidentiality: the proceedings and award are confidential by design;
• Control: the parties can agree on arbitrator(s) they believe is/are neutral;
• Internationally enforceable award: typically, an arbitration’s decision can be enforced in almost all jurisdictions in the world(3) a lot more easily;
• Cost: arbitration may be cheaper than prolonged court proceedings;
• Certainty: arbitration does not exist in a vacuum. Parties may seek assistance from state courts if they feel their legal rights and/or interests have been infringed.

Institutional vs ad hoc arbitration

Usually arbitrations are institutional, i.e. they are part of continually existing institutions, akin to regular state courts.

However, even if the institutional arbitrations suspend for the duration of the Covid-19 pandemic, or in any other case, parties can still elect an ad hoc arbitration. This is an arbitration specifically set up by the parties for their concrete dispute.

It does not matter if the award is issued by an institutional or an ad hoc arbitration: it is just as enforceable and legally binding.

A disadvantage of ad hoc arbitration may be that parties cannot automatically rely on pre-provided rules of arbitration and on the institutional support of the Secretariat or other institutional body supporting the tribunal, but they may incorporate these rules to their specific proceedings adjusting them as necessary. The parties will need to find a method of appointing arbitrators acceptable to them.